A trilateral in name only

When leaders of Japan, South Korea, and China gather in Seoul this weekend, it may be best to paraphrase Sigmund Freud: Sometimes, a meeting is just a meeting.

The Seoul confab will be the first trilateral meeting of Northeast Asia’s main powers since May 2012. This time, however, a new face will represent China, current premier Li Keqiang, who will be making his first visit to South Korea. That is leading some observers to predict that the agenda will be focused more on economic issues than political and security ones. Such an approach would probably suit Japan’s leader, Prime Minister Shinzo Abe, just fine. After all, avoiding the bitterly controversial issues that dog Japan’s relations with South Korea and China – including wartime sexual slavery and comments questioning Japans’ overall war guilt – is possibly the best way to try and restart relations with both Beijing and South Korean President Park Geun-hye. Indeed, Ms. Park and Mr. Abe have not yet had a formal bilateral meeting together since she came to power two years ago.

Any meeting between the leaders of Asia’s largest economies is to be welcomed. Yet it would not be amiss to see it, not only as a most hesitant step towards normalizing high-level diplomacy among the three, but also as an encounter in which Mr. Abe will likely feel that he is facing a largely united Sino-Korean front. After all, Ms. Park has met Chinese President Xi Jinping six times since being elected in 2013. China has made clear its support for Korea on the question of war memory and has even built a museum in honor of the Korean student who assassinated a Japanese prime minister back in 1905. So close have Ms. Park and Mr. Xi become that some in Washington are questioning whether Seoul is beginning to move towards Beijing permanently.

There is little danger in the short-run that South Korea will turn its back on the United States, as well as refuse to maintain working relations with Japan. Yet Mr. Abe has a difficult task ahead of him this week. He must convince Mr. Li and Ms. Park that it is in their best interests, indeed in Asia’s best interests, that their countries develop robust relations with Japan on economic and political issues. At the same time, his long-term interest should be in trying to bring South Korea closer to Japan on a bilateral basis.

A deeper Japan-South Korea relationship makes sense on many different levels. They are both democracies, both allies of the United States. They are liberal societies with a free press, highly educated consumer class, and governed by the rule of law. They both face the specter of an increasingly powerful, coercive, and suspicious China, whose maritime claims could threaten the freedom of navigation on which they both depend as maritime trading nations. Working more closely together, and with bonds of real trust, could make a significant difference in helping shape Beijing’s perceptions of regional stability and what is in China’s own interests.

So far, however, there is little evidence that such a relationship will emerge. A trilateral approach is fine, but it is by definition going to be focused on lowest-common denominator issues. If the three leaders can agree on a free-trade zone, that would be a big move forward in tying them closer together. But there is little likelihood that any meaningful political or security agreements will emerge. For that to happen, it may well be that East Asia’s leading liberal nations – Japan and South Korea – will have to find a way to strengthen their own relationship before tackling the question of how to help ensure that China acts as a cooperative partner helping ensure Asia’s future prosperity and stability.

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Liberté de la mer: A case for French naval operations in Asia

A French frigate is docked at Zhanjiang in Guangdong province this week for a good will visit, and two Australian naval vessels will, in the coming days, engage in bilateral exercises with Chinese warships. After they conclude their activities with the Chinese navy, all three of these ships should head for Subi Reef and other (formerly) low-tide elevations in the South China Sea.

There has been much talk about American allies joining it in combined freedom of navigation operations (FONOPS) like the one the USS Lassen carried out late Monday. Such cooperation would be well and good, but it may be even more important for others to carry out FONOPs on their own.

Soldiers of Chinese People’s Liberation Army (PLA) navy look on as French navy command ship Dixmude (L9015) arrives at the Wusong naval port in Shanghai, China, May 9, 2015. REUTERS/Stringer.

Unilateral Australian FONOPs, for example, would convey that defending freedom of the seas is a national priority for Canberra outside the confines of the US-Australia alliance. It would signal a willingness to incur Chinese opprobrium all on its own, despite the fact that China is Australia’s top trading partner by a wide margin (Australia’s trade with China is nearly three times larger than its trade with the United States).

Perhaps even more significant would be French FONOPs in the Spratly islands. France is no longer a global power, but it does have global responsibilities. Indeed, it is a resident power in the Pacific: French Polynesia, New Caledonia, Wallis and Futuna are all French dependencies.

France also has island holdings in the eastern Pacific and southern Indian Ocean (Réunion was in the news earlier this year when debris from MH 370 washed ashore). French concern with freedom of the seas in Asia, then, should extend beyond concerns for its €54 billion of exports to the region.

French FONOPs in the South China Sea would, moreover, signal a renewed commitment to upholding the liberal international order, which has been under strain in Eastern Europe of late. If that order fails in one region, it fails everywhere. It’s about time America’s European partners recognize that.

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Paul Krugman thinks voters should give Democrats the benefit of the doubt on debt and spending. Hmm …

Paul Krugman on the GOP presidential economic plans:

So now we have candidates proposing “wildly unaffordable” tax cuts. Can we start by noting that this isn’t a bipartisan phenomenon, that it’s not true that everyone does it? Hillary Clinton isn’t proposing wildly unaffordable stuff; Bernie Sanders hasn’t offered details about how he’d pay for single-payer, but you can be sure that he would propose something.

And proposing wildly unaffordable stuff is itself a declaration of priorities: Rubio is saying that keeping the Hair Club for Growth happy is more important to him than even a pretense of fiscal responsibility. Or if you like, what we’ve seen is a willingness to pander without constraint or embarrassment. Also, his insistence that the magic of supply-side economics would somehow pay for the cuts is a further demonstration of priorities: allegiance to voodoo trumps all.

Krugman is right that the GOP economic plans bleed too much red ink, even before their spending cut plans. But I don’t think any of the candidates, at least not of the major ones, is claiming his or her tax cuts will pay for themselves.

Paul Krugman speaks during an interview in New York, May 4, 2012. REUTERS/Brendan McDermid,

More importantly, he gives today’s Democrats, and the left in general, too much credit for fiscal responsibility. For instance, we “can be sure,” he says, that Bernie Sanders “would propose something” to pay for his $18 trillion spending plan. Really? As Jeff Spross write in The Week:

The conclusion, by now, should be obvious: Government deficits are too low, and have been too low for a good long while. … What’s funny is that Sanders might be gearing up to make this very argument. His chief economic adviser, University of Missouri-Kansas City economist Stephanie Kelton, is a fan of something called modern monetary theory: a batch of ideas that sketches out a very similar case to the one above. Of course, Sanders hasn’t done this yet. And maybe he won’t. But if he ever chose to throw down in favor of bigger deficits and more money-printing — on the national stage of a presidential election, no less — he’d be doing the country a tremendous service.

And more from Vox’s Dylan Matthews on Kelton:

Kelton disagrees with Romer and Mankiw on economic theory. In fact, she disagrees with just about every economist Bush or Obama ever hired about economic theory. Kelton is among the most influential advocates of Modern Monetary Theory (MMT), a heterodox left-leaning movement within economics that rejects New Keynesianism and other mainstream macroeconomic theories.

MMT emphasizes the fact that countries that print their own money can never really “run out of money.” They can just print more. The reason we have taxes, then, is not to pay for stuff, but to keep people using the government’s preferred currency rather than, say, Bitcoin. In some rare cases, consumer demand gets too high, so sellers raise prices and inflation ensues. Then, you need to raise taxes to cool the economy down. But the theory holds that this eventuality is pretty rare. James Galbraith, another MMT-influenced economist, once told me that the last time it happened was in World War I. The main takeaway from this is that you really don’t need to balance the budget over any time horizon, and attempts to do so will hurt the economy.

MMT may still be a minority position on the left, but I certainly sense a growing tolerance of higher spending under the belief that interest rates will stay very low, making borrowing more affordable than CBO and other budget experts think. And is proposing “wildly unafforadable stuff” by proposing wildly unlikely tax hikes — for both political and policy reasons — really mean you are fiscally prudent? And this from Tyler Cowen:

In most demand-side liquidity trap and secular stagnation models, there is a shortage of safe assets and that is a major problem which requires remedy.  Rubio’s plan, as I understand it, would raise the budget deficit and by a lot because it is unlikely to prove self-financing in the Lafferian sense.  By current Keynesian views, that should be a feature not a bug.

You might rather the deficit be increased by cutting taxes for the middle class, or by building productive infrastructure, but still the Rubio plan would be better than just sitting tight and doing nothing. Furthermore the wealthy will take their new surplus of funds and invest most of it and maybe spend some of it too.  That boosts aggregate demand, and…if you think the multiplier still is high…well, you can see where this is heading.

Are we all ready to turn “C + I + G” into a mere “C + G”?  I hope not.

And while the Fed is legally constrained from buying corporate bonds and other non-zero-ROR assets, wealthy people most certainly are not, so they could spend their Rubio tax cuts on equity, venture capital, and the like.  In essence we would be using wealthy people, and fiscal policy, to make asset swaps which the central bank cannot.  So liquidity trap arguments should not make this tax cut impotent and arguably they should necessitate it all the more.  You might even (heaven forbid) wish to target the tax cut toward the wealthy, if they are the most likely to take cash and buy relatively risky assets with it.  Right? So by the standards of the current New Old Keynesianism, what exactly is wrong with Marco Rubio’s fiscal plan?  Except that some other plan might be better yet.  Inquiring minds wish to know.

I think what’s happening here is that Krugman is using whatever argument is handy to attack the political party he disfavors.

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It’s mad to forgo missile defense

American thinking about missile defense has been incoherent from the very beginning. The issue is superficially simple: the Soviet Union threatened the American people with nuclear missiles, so the US should naturally have tried to defend them against those missiles. Missile defense is among the most unequivocally defensive military systems one can imagine. It cannot be used for attack. Yet the US signed the Anti-Ballistic Missile Treaty with the Soviets and has refrained from serious efforts to build and deploy large-scale missile defense ever since. This policy never made sense and now makes even less. The proliferation of long-range precision missiles that can strike the US and our allies with either nuclear or conventional warheads requires that America develop and field effective missile defense against all likely foes.

Objections to missile defense have always been based on the belief that it would be de-stabilizing. The US persuaded itself that the most effective way to prevent nuclear war with the USSR was through “mutual assured destruction” or MAD, under which stability in a nuclear world required the nuclear states to know that all would be destroyed if any started a war. The Soviets, interestingly, did not accept this view and strove instead to achieve nuclear predominance. They feared that American technological advantages would allow the US to field an effective defensive system, however, that would nullify their growing lead in missiles and warheads. So they lent their propaganda resources eagerly to the fight against the Strategic Defense Initiative pursued by Ronald Reagan, with a large measure of success.

Whatever sense MAD might have made in the 1970s, it makes no sense today. America would not be more secure, nor the world more stable, if our potential adversaries such as Iran and China, to say nothing of al-Qaeda, knew that they could destroy us utterly at the outbreak of major war. Presidents Bush and Obama have both seemed to realize this fact and worked somewhat tepidly to deploy and enhance systems that could defend against Iranian missiles aimed at Europe or at our forces in and around the Persian Gulf.

The nuclear agreement with Iran heightens the urgency of missile defense because of the way the Iranians have interpreted the deal.

They reject any constraints on their ability to deploy missiles of all ranges and payload-weights, and claim that the agreement itself does not impose any such constraints upon them.

They are right about that—the constraints, such as they are, are in the UN Security Council Resolution endorsing the agreement, not the agreement itself.

They have gone beyond claiming their rights to develop missiles, moreover, and are ostentatiously building, testing, and fielding them. Tehran went out of its way, in fact, to test a missile that violated a UN Security Council resolution just days before that resolution was to be cancelled.

Iran is serious about building a long-range missile arsenal whatever its designs on a nuclear weapon might be.

Yet the legacy suspicion of missile defense continues to paralyze the US, helped, once again, by Russia.

Geometry shows that missile defenses designed to protect Europe or the US from Iranian missiles should be placed in Eastern Europe. It also shows that defenses located there cannot interfere with Russian missiles launched against the US. Yet Vladimir Putin has persuaded many people that the deployment of American missile defense systems in Eastern Europe would be an intolerable provocation of Russia and has largely scuttled them.

Putin’s claims were nonsensical as well as unscientific when he began making them because the US had no desire or intention of trying to defend itself against Russian missiles, despite the fact that Russia’s nuclear arsenal is still large enough to destroy America completely. His intrusion into the discussion of how to defend against Iranian missiles seemed to come from nowhere because Americans gave no thought to Putin’s missiles.

But we must now relook at the complacency with which we contemplate Russia’s arsenal. Putin has threatened to use his nuclear weapons on numerous occasions, including in response to non-nuclear attacks.

He has upgraded Russia’s missile delivery systems and deployed them further west as part of an effort to intimidate Europe.

He has thus deprived us of the ability to protect against Iranian missiles even as he has increased the threat his own missiles pose.

This nonsense must end. Both American and Israeli technology has been demonstrated to be able to shoot down incoming ballistic missiles with very high accuracy. Such systems should be expanded and forward deployed to protect US bases and our allies in Europe and the Middle East from any and all potential missile attacks. But missile development has continued, and we now face increasing threats from cruise missiles and from hypersonic missiles, against both of which current systems would likely prove ineffective. So another round of missile defense research must be launched to respond to those new threats.

Missile defense is not destabilizing. It does not cause war. It saves lives. Just ask the people of Israel living under the shadow of Iron Dome. Developing effective defense against the most dangerous weapons on the planet is a strategic and moral imperative.

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Flat taxes and gold: A few thoughts on Ted Cruz’s economic plan

Full disclosure: I have written critically of the flat tax and gold standard as appropriate policy choices for the modern US economy. Frequently, in fact.

So there goes Ted Cruz in Wednesday’s debate endorsing both policies (kind of regarding the gold standard): “If you want a 10 percent flat tax where the numbers add up, I rolled out my tax plan today. … And I think the Fed should get out of the business of trying to juice our economy and simply be focused on sound money and monetary stability, ideally tied to gold.”

Some thoughts:

1) Cruz has momentum in the betting/prediction markets. Now that may have mostly, if not entirely, to do with his sharp attack on the media. But I can see how his economic plan would score well with many GOP primary voters who (a) think the tax code is hopelessly broken and (b) fret that the Fed’s “money printing” will lead to surging inflation or financial crisis.

Ted Cruz speaks during the Heritage Action for America presidential candidate forum in Greenville, South Carolina September 18, 2015. REUTERS/Chris Keane.

2) To be fair, Cruz didn’t specifically say “gold standard.” I suppose you could just make Fed policy more dependent on what gold is signaling about inflation without returning to late 19th, early 20th century monetary system.

That said, here is the great free-market economist Milton Friedman on the gold standard (thanks to economist Roger Farmer for the pointer) in Capitalism and Freedom:

Even during the so-called great days of the gold standard in the nineteenth century, when the Bank of England was supposedly running the gold standard skillfully, the monetary system was far from a fully automatic gold standard. Even then it was a highly managed standard. And certainly the situation is now more extreme as a result of the adoption by country after country of the view that government has responsibility for ‘full employment.’ [A gold standard] is not desirable because it would involve a large cost in the form of resources used to produce the monetary commodity. It is not feasible because the mythology and beliefs required to make it effective do not exist. This conclusion is supported not only by the general historical evidence referred to but also by the specific experience of the United States.

Again, I think the consensus GOP take on monetary policy is misguided.

3)  My AEI colleague Alan Viard wrote a must-read post yesterday on the Cruz tax plan, which combines a low flat income tax with a value-added tax — though Cruz doesn’t use that term.  A key bit from Viard:

A VAT is much more growth-friendly than the income tax because it does not penalize saving and investment. However, it places more of the tax burden on those who are less well off. And, giving the government another major revenue source might make it harder to restrain entitlement spending growth.

The concern about spending growth is heightened because Paul’s and Cruz’s proposed VATs would be hidden from public view – their plans do not include either of the two steps that can be taken to make VATs visible to the public .A VAT can be split into a business cash flow tax and a wage tax, with the wage tax collected as an employee payroll tax that shows up on workers’ pay stubs. Or, the total VAT collected from businesses along the production chain can be listed as a separate line item on the final customer’s receipt, the way state and local retail sales taxes are listed. But, the Paul and Cruz plans would collect the VAT from businesses without listing it on customer receipts, ensuring that neither workers nor consumers would ever see the tax.

It’s a politically clever plan that allows Cruz to offer a super-low flat income tax at a rate not seen for a century. But it doesn’t lose the sort of revenue one might think because of the VAT. The Donald Trump plan, for instance, would lose $12 trillion ($10 trillion on a dynamic basis), according to the Tax Foundation, with a progressive tax code and 25% top rate. The Cruz plan would lose just $3.6 trillion statically, $800 billion dynamically. (Not that those revenue losses aren’t still pretty big.)

As the Tax Foundation’s Alan Cole explains:

It’s a powerful tax that captures pretty much all of the income in the country.  … Ted Cruz has proposed combining the corporate income tax, the payroll tax, and some of the income tax into a single, larger, broader tax assessed on businesses. … The Cruz plan would give us a rate of equivalent to 19 percent, by the invoice credit method. Furthermore, if you counted sales taxes levied at the state and local level, this plan would put our consumption tax rate at around 26 percent, tax-exclusive. That is actually towards the high end of the range of ordinary OECD countries. For example, in Denmark and Sweden, the overall consumption tax rates are in the mid to high twenties. In Australia, the rate is ten percent, and in Japan and Switzerland, the rate is in the single digits. With this high VAT revenue (and much lower government spending than other OECD countries) the U.S. could sustain low income tax rates, such as the ten percent proposed by Senator Cruz.

4) Indeed, if one assumes the future US tax burden will need to rise for demographic reasons, the VAT provides an efficient mechanism for raising taxes in a less economically harmful way. Some Democrats talked about a VAT after President Obama’s 2008 election to pay for healthcare reform.

I would guess Cruz’s primary opponents will attack his VAT as enabling bigger government, especially given its “hidden” nature. But it does have some big economic merits, deficits aside.

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China scraps one-child policy: Country’s great age of reform begins in the bedroom

Governmental reform plans have been known since Hammurabi drafted his first set of law codes over 3,000 years ago. The repeated cycles of reform and reaction are as much an exercise designed to keep government scribes and bureaucrats busy, as they are intended to affect the activities of the people under central control. Rarely, however, does reform directly impact the most intimate matters of the lives of citizens or subjects.

Such is not the case with China’s announcement Wednesday that the country’s 35-year old infamous one-child policy is to be scrapped.

Imposed when Chinese leaders feared that their then-800 million strong population would grow to an extent that would make it impossible to feed or control, the policy was perhaps the most egregious imposition of state control on the lives of Chinese citizens.

No one will ever know the true figures, but anywhere from 200 to 400 million births were “averted” thanks to the policy. Its brutality, also, was legendary, as pregnant women were forced to undergo abortions or sterilization.

The policy may have successfully retarded the growth of China’s population, but as with all large-scale or intrusive central government plans, it resulted in significant unanticipated consequences.

Perhaps the most damaging was a skewing of the sex ratio at birth, thanks to sex-selective abortions practiced by expectant parents. Since male babies are valued more for their eventual labor abilities, female fetuses were aborted as a matter of practice. China now has one of the most imbalanced sex rations, with 116 males born for every 100 females. This already is leading to the inability of millions of Chinese men to find mates; by some estimates up to 25 percent of Chinese males cannot find brides.

Another consequence was the number of Chinese who got around the prohibition, sometimes by giving birth outside the country, other times by simply ignoring the edict. Yet, overall, it was wildly successful.

Now, China faces the fruits of its policy: an aging population. China’s fertility rate slipped below replacement rate back in the early-1990s, and now the country is facing the beginnings of a labor shortage. Over the next 20 years, China’s working age population (15-64 years of age) is expected to shrink by nearly 60 million. This means further stress on wages, which have been increasing and leading to reduced competitiveness for Chinese companies, and a drag on the manufacturing sector.

It also means that a bulge of older citizens will have to be supported by fewer workers, increasing the pressure on government to provide a firmer social safety net.

In short, as is now common to say, China will become old before it becomes rich.

Hence the dramatic announcement that the government will step out of China’s bedrooms, at least partially. After hesitant reform in 2013, to allow rural families to have more than one child, all Chinese will now be allowed to have two children. While the state will ostensibly still monitor the reproductive activity of its citizens, the move is perhaps the beginning of a major wave of reform in China, spurred by the recognition that the country’s golden era of growth is over.

Slowing economic growth will drive the Chinese Communist Party to make difficult choices. While any type of political liberalization appears to be off the table, especially given the tightening of control by President Xi Jinping, China’s leaders may have to allow a greater loosening of entrepreneurial spirit and individual activity.

Allowing couples to have two children might well be seen as tacit recognition that the private sphere in China will have to be respected more in the future.

Yet there are no easy solutions to China’s looming problems. In fact, the modicum of greater freedom given by the government to the family planning of its citizens may in fact not result in a new baby boom. Like many maturing economies, China may find that its younger generations don’t want to accept the burdens of raising more children in a more uncertain and expensive economic environment. That, ironically, could result in more drastic action being taken by Beijing, though as their neighbors the Japanese can attest, there is little bureaucrats can do to make more babies.

In the end, what the end of the one-child policy represents may be as simple as a dramatic recognition that the next era in Chinese history will be one of trying to find solutions to problems that have simmered for decades.

There will be successes and failures, but the big picture will be one of a government torn between accepting the need for real reform while avoiding any moves that may undermine its hold on power.

Call it the Great Era of Muddling Through.

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How the national debt affects your family: Hassett on Fox News’ ‘Special Report’

 

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China, South Korea, and Japan: What to expect from the trilateral summit

After a three-year hiatus, South Korea, Japan, and China will convene for a trilateral summit on Sunday, November 1, 2015.

The high-level meeting, though largely symbolic, is intended to address several ongoing regional disputes including historical grievances over Japan’s wartime past, Chinese military aggression in nearby waters, and prospects for a trilateral free trade agreement. Some thoughts on challenges and opportunities for progress.

South Korea’s President Lee Myung-bak (L), China’s Premier Wen Jiabao (C) and Japan’s Prime Minister Yoshihiko Noda stand in front of their national flags during a joint news conference of the fifth trilateral summit among the three nations at the Great Hall of the People in Beijing, May 13, 2012. REUTERS/Petar Kujundzic.

Michael Auslin

When leaders of Japan, South Korea, and China gather in Seoul later this week, it will be the first trilateral meeting of Northeast Asia’s main powers since May 2012.

While any meeting between the leaders of Asia’s largest economies is to be welcomed, it will most likely not result in a major step towards normalizing high-level diplomacy among the three countries. During the meeting, Mr. Abe will likely feel that he is facing a largely united Sino-Korean front. So close have Ms. Park and Mr. Xi become that some in Tokyo and Washington are questioning whether Seoul is beginning to move towards Beijing permanently.

There is little danger in the short-run that South Korea will turn its back on the United States, as well as refuse to maintain working relations with Japan. A deeper Japan-South Korea relationship makes sense on many different levels. They are both democracies, both allies of the United States. They are liberal societies with a free press, highly educated consumer class, and governed by the rule of law. They both face the specter of an increasingly powerful, coercive, and suspicious China, whose maritime claims could threaten the freedom of navigation on which they both depend as maritime trading nations. Working more closely together could make a significant difference in helping shape Beijing’s perceptions of regional stability.

A trilateral approach is fine, but it is by definition going to be focused on lowest-common denominator issues. If the three leaders can agree on a free-trade zone, that would be a big move forward in tying them closer together. But there is little likelihood that any meaningful political or security agreements will emerge.

Dan Blumenthal

This weekend’s trilateral summit between Li Keqiang, Park Geun-hye, and Shinzo Abe will be the first of its kind since 2012. While a great deal of attention has been paid to the trilateral, US policy makers should be primarily concerned with the outcome of the Abe-Park bilateral sideline meeting on Monday. The two leaders met informally at the UNGA in September 2015 and at Lee Kuan Yew’s funeral earlier this year, but this will mark their first formal summit.

The two countries have had a difficult past, and Imperial Japan’s behavior on the peninsula was reprehensible. But democratic Japan is not Imperial Japan — since WWII Tokyo has been a force for good in the world. It is now up to the Seoul and Tokyo to engage in private diplomacy to decide how to best deal with the past and look to the future.

A top priority for US policy is a strong trilateral alliance structure among Washington,Seoul, and Tokyo. Such an alliance would solidify Northeast Asian security by strengthening the containment and deterrence of a nuclear North Korea and pushing backing against China’s aggrandizement. South Korean leaders know that the peninsula is indefensible without Japan, just as Japanese leaders know that their security will be enhanced through cooperation with the ROK on nuclear deterrence. The pieces of a new alliance structure are in place, it will now take leadership to put it together.

Michael Mazza

 On November 1, the leaders of China, Japan, and South Korea will gather for a trilateral summit—their first since 2012. Since that time, China and South Korea have gotten very buddy-buddy, while South Korea and Japan have managed to avoid talking to each other even though their overriding strategic interests demand it. Perhaps the best that can be said about Japan and China is that they’ve avoided war.

In one sense, then, it’s notable that Li Keqiang, Shinzo Abe, and Park Geun-hye have found a way to sit down together for some good, old-fashioned summitry. But although it is easy to get excited about these leaders talking to, rather than yelling at, each other, there’s little reason to expect the meeting will kick off a winter of warmer relations.

What should we expect? Boilerplate language on denuclearizing the Korean peninsula, deepening trilateral economic ties, and increasing dialogue seems likely. But even on these issues, national interests are not entirely aligned.

Beijing’s primary interest in North Korea has never been denuclearization, but rather stability, and President Park’s talk about unification likely makes Xi Jinping nervous. Progress on a trilateral free trade agreement has been slow, while South Korea has expressed interest in joining the recently concluded Trans-Pacific Partnership, in which Japan is a member and from which China is currently excluded. Japan and China have seen increased dialogue over the past year or so, but an agreement on a maritime hotline—seemingly low-hanging fruit—remains out of reach.

Much more important than the trilateral summit is the expected bilateral Abe-Park meeting. Although there appears to be little prospect of South Korea and Japan resolving their historical differences, they do have much of importance to discuss—planning for North Korea contingencies, coordinating efforts to preserve order in and over the East China Sea, intelligence sharing, regional missile defense initiatives, South Korean inclusion in the TPP…the list goes on.

If President Park and Prime Minister Abe can find their inner statesmen and prove they can engage in substantive discussions, it will pave the way for more consequential trilateral diplomacy—that between Washington, Tokyo, and Seoul.

 

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Diagnosing the urge to run for office

Editor’s note: The following is an excerpt contributed by AEI’s Sally Satel in Politico Magazine’s “Diagnosing the urge to run for office,” November/December 2015.

‘No reason to suspect aberration as a general rule’

A few months before the 1964 presidential election, the now-defunct Fact magazine surveyed the membership of the American Psychiatric Association about the personality of Barry Goldwater, the Republican nominee. The psychiatrists savaged Goldwater, calling him “warped” and a “paranoid schizophrenic” who harbored unconscious hatred of his Jewish father and endured rigid toilet training. This absurd analysis prompted the APA to formulate the Goldwater Rule, advising members that it is “unethical for psychiatrists to offer a professional opinion unless he/she has conducted an examination and has been granted proper authorization for such a statement.”

This is not to say that careful psychometric evaluations are invalid. In such studies, presidents (who were once candidates, of course) rate more highly than the average person in terms of narcissism. But there is no reason to suspect aberration as a general rule. A 2006 study by Duke University psychiatrists found that, over their lifetimes, presidents displayed no greater incidence of psychiatric diagnoses than the rest of the population. (The authors acknowledge that the raw data they had to rely on were not perfect and that politicians’ psychological difficulties, if they do manifest, may emerge as a result of the pressures of office.)

Still, for psychological insight on important political figures, we may do better to turn to biographers like William Manchester, Robert Caro and Lou Cannon. Beyond the obvious, and objectively documented, preponderance of ambition, outsized self-confidence and related traits in presidential candidates, anyone who offers fanciful theories about candidates’ psychological health or explanations of their foibles involving the neurotransmitter dopamine is probably just spinning. —Sally Satel, resident scholar at the American Enterprise Institute and lecturer in psychiatry at the Yale School of Medicine

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No Medicare premium spike…for now

The fix is in, but seniors have little reason to celebrate. About 16 million Medicare beneficiaries were facing an unprecedented 52 percent increase next year in their premiums for Part B, which pays for physician services. The budget deal worked out by the White House and Congress held that to a more manageable 15 percent increase. But this kicks the cost down the road, leaving an even bigger problem for seniors in future years.

Most Medicare beneficiaries are protected by a “hold harmless” provision, which ensures that their monthly Social Security checks will not be reduced when Medicare’s Part B premiums increase. The consumer price index used to adjust Social Security payments for inflation actually declined over the past year, resulting in no cost-of-living increase for recipients. In contrast, Part B spending increased about 6 percent. Despite the higher cost, premiums are not allowed to increase under the hold harmless provision. Any premium increase would reduce the Social Security check paid to millions of seniors.

Like other government guarantees, this one is not free. The 36 million beneficiaries protected by hold harmless pay $104.90 a month, about $15 less in premiums than they would without the provision. The 16 million who are not protected under hold harmless – including high-income seniors who already pay larger premiums than most others, new enrollees, Medicare beneficiaries who are also enrolled in Medicaid (for whom state Medicaid programs pay their Medicare premiums), and individuals (primarily civil servants) who never qualified for Social Security – make up the loss in revenue.

The premium increases would have been breathtaking. Most beneficiaries who are not protected by hold harmless were slated to pay $159.30 every month next year. Seniors with high incomes would have paid substantially more, with premiums exceeding $500 a month for those in the top bracket.

The Bipartisan Budget Act of 2015 reduces the premium increase for those not covered by hold harmless, who will pay $120.70 a month next year. Beneficiaries with high incomes will pay more, but even those in the highest income bracket will be charged about $100 a month less than would have been the case. By my estimate, that creates an $8 billion hole in the Part B trust fund which will be repaid by charging everyone who is not protected under hold harmless an additional $3 a month for as long as it takes.

That’s what the press statements say, but that is not how it will work out. Conveniently overlooked is what happens to premiums in 2017.

If inflation remains flat and the Social Security cost-of-living adjustment is zero, then we have a repeat of the fix in 2017 with most Medicare beneficiaries paying the same $104.90 monthly premium for another year. But that is not likely. Instead, we could see consumer prices rise somewhat even with continuing weakness in the economy. If that happens, the hold harmless provision will again impose very large increases in premiums for millions of seniors.

Here’s a rough calculation. The average retired worker receives $1,335 a month in Social Security benefits. If prices rise about 1 percent over the next year, then the average cost-of-living adjustment increase for 2017 will be about $14 a month. For Medicare beneficiaries protected by hold harmless, that is the most that Part B premiums can increase that year.

That will not be enough to avoid having to substantially increase the premiums paid by millions who are not covered by hold harmless. Even ignoring the $8 billion loss of revenue in 2016 caused by the Bipartisan Budget Act, premiums would increase by at least $35 a month for seniors who are not protected by hold harmless. Depending on how quickly the Medicare trustees want to re-establish a balance in the trust fund that is consistent with past practice and industry standards, the increase could be much higher.

That’s not the end of the story. The budget act explicitly denies the secretary of health and human services the authority to use the fix after 2017. That provision was included because White House and congressional negotiators know they did not solve the problem. We will continue to have a mismatch between rapid health spending and low general inflation, and that will lead to future “hold harmless” political crises. This is a symptom of a program that is on an unsustainable path, and no amount of budget maneuvering can fix it.

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